IP risks grow patently obvious
14 November 2007
By Garry Booth
Board directors were made acutely aware of the problems caused by patent infringement when their Blackberry service was threatened by a dispute between the maker, Research In Motion (RIM), and patent holding business NTP, which had claimed RIM stole its technology. A $612.5 million settlement ended a four year legal dispute in the US between the two companies.
Businesses are increasingly aware of the value of their intellectual property assets and the risks associated with them.
A new survey from Marsh that examines developments in risk reporting since the Combined Code corporate governance regime was launched in the UK says that more companies are reporting on the IP risks to their business, notably patent infringement.
The heightened emphasis on corporate governance and changes in accounting standards means that awareness of IP risk has been forced upon companies, says Matthew Hogg, vice president in Marsh Global’s London-based Technology, Media & Telecoms Practice. “So it is increasingly something that is of concern for board members,” he says.
Company valuations used to be determined by capital assets, such as plant and equipment. But according to a recent study by PricewaterhouseCoopers, “intangibles”, such as patents and copyrights, probably account for more than half of the market value of the average listed company worldwide.
IP risk suits the Lloyd’s model, says Ian Lewis, who heads up Samian Underwriting Agencies, which specialises in standalone IP risk. “Lloyd’s excels in this kind of cutting edge environment because Lloyd’s is a ‘transactional’ marketplace,” Lewis says. “In the US for example, insurers tend to stick to standard policy forms. That approach won’t work for IP covers because there are so many variables in IP risk.”
Lloyd’s can offer a wide range of IP-related coverages to companies around the world. Kiln, for example, focuses on protecting IP against impairment caused by events such as legal claims that an assured’s IP rights vest with a past employee. Or Kiln’s policies can protect against actions by governments that render IP rights void.
In addition to this kind of first party exposure, patent infringement is moving up the agenda. A third of respondents to a survey of 250 US corporations by the US law firm Fulbright & Jaworski said they had been hit with at least one patent infringement suit in the past three years. Nearly 40% said the pace of filings against them had gone up in the same period. One-quarter of companies said they had initiated their own patent claims against other parties. Twenty-eight percent confirmed that they were bringing more new patent cases now than they were three years ago.
As patent litigation heats up, businesses are increasingly looking to protect themselves from third party claims by seeking indemnities from their suppliers and their customers.
Samian’s Ian Lewis describes a typical case involving a medical devices company that wanted to sell a product range to a larger company in a deal worth US$60m.
The deal had stalled and was in danger of not closing.because the buyer wanted to be indemnified against being sued for patent infringement. It was concerned that as the larger company, it would be the target for a lawsuit, rather than the smaller company.
Samian worked closely with Miller Insurance Services to put together a two year IP risk indemnity with a US$10m limit underwritten at Lloyd’s. The existence of the insurance “wrap” around the warranties and representations facilitated the sale of the product range and saved the deal.
Lloyd’s involvement in IP risk seems set to grow as the pace of globalisation increases and more companies move from a manufacturing model to a licensing model, Marsh’s Matthew Hogg says: “IP risk management will get more and more important because the revenue driver of the business is more apparent to all stakeholders - from the board, to the customers, to the shareholders.”
Last updated on 14 Nov 2007
